We asked our Advisors here at Sage which questions they were most asked during 2011. We hope you find the answers helpful and if you’ve got any specific financial planning questions you’d like answered, please contact us or you can pop them in the comments!
Question: Why does the share market always seem to go down?
Answer: A quick look at the all Ordinaries Index shows that since the market peak in November 2007 at about 6800, its current value of roughly 4150 (at the time of writing) is a drop of about 39% over the 4 year period. This stat alone seems to sum up what people already know, that is, the share market has been a tough ride over the last 4 years. Having said that if we take a longer term view of say 20 years the ASX All Ordinaries on average has returned 9.0% annually, compared to cash at 5.8%. Even a 10 year time frame has shares outperforming cash by 1.1% over that period. So whilst on recent form it does seem like the share market is a basket case, long-term averages suggest this is the place to be if you want higher returns.
Question: When can I access my super?
Answer: The easy answer is 65, then it gets more complicated depending on the age you decide to retire, if you were born before the 1st of July 1960, you could retire at age 55 and access your super with no restriction. Each person could have different accessibility options available to them depending on age.
Question: What are advantages of Superannuation?
Answer: Superannuation is concessionally taxed of generally up to 15%. Your resources can be pooled with other investors, allowing you to make investments impossible for an individual investor. It helps you to easily diversify your investments. Having your savings locked for a predefined period may be an attractive benefit for those people who may be tempted to "dip" into their longer term money for retirement.
Question: Do people actually follow a budget?
Answer: Some people do, of these mostly in a general manner. Actually having a set of firm numbers (being your anticipated expenses) and comparing your expenses to this is quite rare. Most people give up early in the piece as they can’t see the benefit. We can incorporate this type of cashflow monitoring for our clients to ensure maximum usage of income.
Question: Do I have enough super?
The immediate answer is “I don’t know”. To provide our eventual and more appropriate answer takes a significant amount of work and there is some crucial information that we need to know. Two of the most important bits of information are when you want to retire and how much income you want each year in retirement. The second question brings about some interesting answers such as “Oh I don’t need that much. I’d probably live on about $40k a year.” or “Oh I don’t need that much. I probably be happy with $100,000 a year”. So you can see the answer to this question is never straight forward and differs greatly from person to person.
Question: Have I got the best super fund?
Answer: Again there is no straight forward answer. When most clients ask this question I ask them in return “ What do you think makes a good super fund?”. Clients who haven’t seen a planner before (and plenty that have) will generally say “The one that makes the most money”. However, financial planning 101 teaches us that past performance is not an indicator of future performance so the fund that did the best over the last few years may not perform anywhere near as well over the next few years. Also, there are a number of other factors to consider such as ..... will the fund allow you to nominate who receives the monies if the client dies, does the fund have appropriate insurance options, what type of investments would the client like (such as term deposits or shares), what are the fees and many more issues.
Importantly there are thousands of super funds available and a Financial Planner cannot know the ins and outs of all of them. Financial Planners are required to be very familiar with a good cross section of funds that can meet a wide variety of different types of clients so that we can recommend a good fund that we have investigated and know it meets your requirements.
Question: Aren’t those insurance premiums a little expensive?
Importantly, with any cost a person needs to believe that the cost outlay provides sufficient benefit or they don’t make a purchase or sign a contract. With personal insurance the benefit is that you are protecting your families standard of living in the future or protecting their wealth should something happen to the client. What a person needs to consider is the financial ramifications of not having insurance if they are to be unable to work, become sick or injured or even die. If a client can gain an understanding of these significant setbacks they can often understand that the downside of paying these premiums now is a lot more palatable than the alternative if they suffer an insurable event and they aren’t insured.
In addition, premiums are very much dependant on the insurers understanding of the risk a client provides to them. So obviously a 60 year old male who has high cholesterol and high blood pressure will pay a lot more for the same level of cover as a fit and healthy 40 year old. So high premiums are generally reflective of a high risk that a client will be eligible to claim. However, if a client is a high risk to claim, this may increase the importance of having insurance in the first place.
Question: What are the benefits of insuring through super?
Answer: There are many benefits of insuring through your superannuation rather than outside of super. One of the main benefits is that premiums for personal insurance cover via a non-super policy are generally paid with after-tax dollars. On the other hand, premiums paid through a super fund can effectively be funded from concessionally taxed super contributions. In addition, tax concessions can apply to super benefits paid as a result of death, terminal illness or total and permanent disability. As a result, insuring via super can often be more tax-effective compared to insuring outside super.
Question: Do many people have any Lost super?
Yes! Australia has approximately $12.9 billion dollars worth of unclaimed super, the question is how much of this is yours? $4000? $5000? Maybe even $10,000+ dollars due to inflation?
Many of our clients have held multiple jobs over their working lives and have had different super funds for each one. Super gets lost when an employee moves jobs or superannuation funds without notifying their existing fund of the change. This works no different to having $5000 in a bank account and just throwing away all record of having it and not bothering to chase it up. Silly isn’t it!
The sooner you find your super the sooner you can get it to work for you, your unclaimed super could be subject to high admin fees and commissions while making very small returns, depleting your funds.
The good news is we can help you locate your lost superannuation monies and make sure that these funds work hard for your retirement.
Question: What is the cost of delay?
Answer: Waiting to begin your savings plan can have a huge impact on your results. A delay of even a few years could cost you thousands of dollars. In some recent calculations a client considered investing $5k per year for a 10 year term but wanted to start the investment in 3 years time. This time delay, based on an assumed 6% growth, would cost the client $25,371!
*image by o5com via Flickr